Sugar Cane Industry

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DEDICATION

We dedicate this paper to our parents. Without their patience, understanding,

support, and most of all, love, the completion of this work would not have been possible.


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ACKNOWLEDGEMENT

We would like to thank Sir Ronnel Sudaria for his direction, assistance and

guidance. We would also like to thank him for the recommendations and suggestions he

has given.Special thanks should be given to our friends and classmates who helped usin many ways and above all to the Almighty God who give us the strength, wisdom and

faith to finish this paper.


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TABLE OF CONTENTS

I. INTRODUCTION

Objective of the study

Operational Definition of Terms

II. GENERAL SETTING OF THE

STUDY

History/Historical Background

Location

Characteristics of the Industry

III. ISSUES AND CONCERNS

SWOT Analysis

IV. RECOMMENDATION

Bibliography

Documentation/Appendices

Curriculum Vitae


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INTRODUCTION

Objective of the Study

The main objective of this paper is to study the Sugarcane industry in the

Philippines. In line with that is to know the history and characteristics of the said

industry. Also, the paper cites some issues and concerns for the industry. Finally, the

researchers have made a SWOT analysis of the industry and made some

recommendations.


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Operational Definitions of Terms

Sugarcane is a massive, bamboo-like grass of genus "Saccharum", tribe

"Andropogonaeae", and family "Poaceae". Scientists call it

photosynthetically efficient, in that it creates sucrose from sunlight,

air, and water better than just about any other plant on earth. The

only ones that come close are sugar maple and sugar beet; not

coincidentally, those are precisely the two plants that compete

directly with cane in the world sugar market.

Quedan


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GENERAL SETTING OF THE STUDY

History/Historical background

The Checkered Origins of the Sugar Industry

The history of sugar production is intricately linked to the evolution of two rather

unsavory reflections of man's inhumanity to man, those being colonialism and slavery.

Early European settlers in the Caribbean soon began planting sugar cane and building

sugar mills to process the output. Sugar cane is a delicate plant, and there was always

a need for plenty of fertilizer, irrigation, and a workforce that would work long hard hours

of backbreaking labor without complaint - or without choice, as in the case of slaves.

The colonialists brought almost 12 million West Africans to the Caribbean in chains in

the holds of slave ships during the four and half centuries between 1450 and 1900.

The early sugar business was defined by the notorious "triangular trade." Sugar from

the Caribbean was taken to England for refining and rum production. Cloth, firearms,

and rum were in turn shipped down to West Africa as capital for the slave trade. The

slave ships then took their degraded human cargo to places like Haiti and Barbados to

exchange them for yet more sugar.

The production process for sugar was exacting, and the slaves lived and worked

in unspeakably difficult conditions. They spent weeks on end in the fields, bent over at

the waist, hacking away at the tough stalks, some as tall as 20 feet, with razor-sharp

machetes. After harvesting, the cane was taken to a mill, where it was ground through

rollers to extract the precious juice. This was followed by laborious cooking in witch-type

cauldrons that had to be tended around the clock. Timing was of the essence, since


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cane juice spoils quickly. After extraction, the juice was poured into molds, with the

excess drained off to make molasses. The hardened bricks of raw sugar were shipped

off to Antwerp or London refineries for processing.

During harvest time this was a 24/7 operation and the slaves were worked to

near-death. Workers inevitably got so exhausted that fingers or hands were often lost.

According to one historian A hatchet was kept in readiness to sever the arm, which in

such cases was always drawn in; and this no doubt explains the number of maimed

watchmen."

Early on, sugar was a minor commodity, used primarily as a spice. But the

introduction of tea, coffee, and chocolate to the Western palate led to surging demand

for sugar, which soon displaced tobacco as the New World's most profitable export.

Indeed, the matrix of sugar, molasses, and rum (made from the fermented molasses)

represented one of the first major industries in the colonies.

It didn't take long for a massive world sugar industry to evolve throughout the tropical

and subtropical worlds. Many fortunes were made and lost, and the sugar industry

played a key role in stimulating industrial production in Britain. By the end of the colonial

era, many ex-colonies were locked into a cycle of dependent development, with sugar

exports being their primary if not only source of foreign exchange earnings.

The Case of Negros Occidental

Although there was never a slave trade in the Philippines, the sugar industry here

has its own unique history of exploitation, excitement, and human drama. Nowhere is


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that story better illustrated than in the province of Negros Occidental, located between

Panay and Cebu in the Visayas.

The Spanish crews who first surveyed the island coined the term Negros

Occidental because of the dark-skinned people they saw. The ethnic mix changed

substantially in the intervening centuries as a result of the complex intermarriage among

natives, Spanish, and Chinese. Indeed, Negrenses are known for their fair skin and

mestizo traditions.

Sugar was grown as a subsistence crop long before it was exported. Nicholas

Loney, a British businessman, was the first to recognize its potential as an export crop.

He brought in machinery for sugar production in the 1850s. Originally based in Iloilo,

rich mestizo businessmen soon migrated to nearby Negros to take advantage of the

fertile land and large indio workforce. In an early form of globalization, the opening of

Visayan ports (Iloilo and Cebu) and the introduction of sugar cane as a lucrative cash

crop changed everything. By the 1860s, Negros Occidental was the leading sugar

producing province in the Philippines, well on its way to becoming known as the "sugar

bowl of the Philippines."

The hacienda system that evolved in Negros was built on sharecropping and

debt relations. The rich sugar families, all of Spanish roots, created a classic hacendero

system much like the Latin American model. They took paternalistic care of "their"

people pretty much from cradle to grave, serving as godparents, paying their medical

bills, and occasionally bailing them out of jail. In return, they demanded and received

complete subservience based on sharecropping and the "company store" model.


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The Quota System and the Emerging World Market

By the early 1900s, the Philippines sugar industry was well established. The

American colonialists played a key role in boosting the industry in the form of the

Payne-Aldrich Act (1909). This important law created a tariff wall that guaranteed easy

export of sugar to the states at prices held artificially well above world norms. It also

created a situation in which the gap between rich and poor grew even greater, and

ensured that there would be little economic incentive for modernization.

Over the next decades, the Philippines produced and exported huge amounts of

sugar to the American market. This system was further reinforced by the quota system

created in 1934 by the Jones-Costigan Act. This law essentially guaranteed a protected

market for Philippines sugar. One result was that 70% of cultivated land in Negros was

soon planted in sugar, accounting for half of Philippine sugar production year in and

year out. Another result is that the sugar lites emerged as an even more dominant

political and social force in the years leading up to independence.

After World War II and with the coming of Philippine independence, the sugar

elite came into their element. As described in Cronies and Booty Capitalism, the 1950s

saw the absolute heyday of the sugar economy. Wealthy sugar families maintained

palatial homes in Bacolod and Manila, traveled in style around the world, and educated

their children in the country's top schools. Although many sugar families diversified into

other sectors and became dominant industrial and business forces, many of the Negros

families were content to live the life of Riley and enjoy the fruits of a very lucrative

endeavor.
http://www.apmforum.com/columns/orientseas9.htmhttp://www.apmforum.com/columns/orientseas9.htm


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The Crash

However, there were many flaws in the sugar system, not the least of which were

the extremely inequitable land distribution inherent in a sharecropping system and the

dependence on the kindness of strangers (in the form of the Yank's continued

subsidization of sugar via the quota system).

By the 1960s, the US had developed its own sugar industry based on High

Fructose Corn Syrup, leading to dramatic reductions in quotas for sugar cane. The

Philippines suddenly found itself forced to sell its sugar on the world market, which had

become basically a "dump market" for highly subsidized sugar such as that from the

European Community. In the global context, sugar cane nations like the Philippines

were (and are) in direct competition with sugar beet producing nations in the temperate

zones. In those countries, which include the states and European nations, production is

highly mechanized and farmers are paid well (subsidized) for their crops. In the post-

quota system, you were either fortunate enough to be able to take advantage of

subsidies (as the Philippines had been as long as quotas held up) or you were left out in

the cold. After the collapse of quotas, the Philippine sugar barons - and those who

worked their land - were freezing.

Although a series of International Sugar Agreements have controlled world prices

to some extent, massive fluctuations have been the norm over the last quarter century.

Indeed, the world price sank from more than 60 cents/pound in 1974 to 40 cents in 1980

to an abysmal 3 cents in 1985. The resulting economic crash drove 85% of Negros'

population below the poverty line.


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In addition to dependency on unpredictable international commodities markets, the

sugar farmer is subject to the vagaries of Mother Nature. When it rains too much, trucks

can't get out in the fields to get the cane. Although the nave observer may admire the

beauty of a field of sugar cane blossoming with snow-white flowers (sort of like the

poppy field that put Dorothy and the Cowardly Lion to sleep), that same panorama

brings chills to the spine of the sugar planter. He knows that those entrancing blossoms

mean that the sugar content of the cane is being rapidly depleted, and along with it

market value at the mill.

Sugar has become a feast or famine industry dependent on the vagaries of the

international market. Hacenderos have grown used to a repetitive pattern of one good

year, then a bad year, then a so-so year, always praying that the good years yield

enough income to subsidize the bad. In recent history, however, the bad years have

become increasingly common and the good years fewer and farther between.


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Location

The Philippines have about 54,000 sugarcane farms in 2004 and 80% of which

are 10 hectares and below. Production is concentrated in Western Visayas accounting

for about 60% of total during 1993 to 2004. It was followed by Northern Mindanao,

Central Visayas, and Southern Tagalog and Central Luzon.

TABLE1. SUGARCANE: Regional Distribution of Production, 1993, 1998 and 2004


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Characteristics of the Industry

Production

Production fluctuated throughout 1993-1998. There were sharp decline in 1995

and1998 of more than 20% reducing production to 17.5 million tons with around 20%

fall in area harvested mainly due to crop shifting and effects of the ElNio weather

phenomenon. Meanwhile, from 1999 to 2004, production fell by11% in 2000 but

expanded by 5% per year since then. The major growth drivers were the use of good

quality cane varieties with improved farm management.

TABLE2. SUGARCANE: Volume of Production, 1993-2004

TABLE3.SUGARCANE: Production Index, 1993-2004


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Output in 2004 was only 12% higher than in 1993. Production was relatively

stable during 1999 to 2004 than in 1993 to 1998.

According to the latest production estimates released by the Sugar Regulatory

Administration (SRA), Crop Year (CY) 2009/10 raw sugar production is projected to

drop to 1.90-1.96 MMT, a drop of over 12 percent from the initial forecast of 2.16-2.18

MMT made last year. Reduced fertilizer use, a decline in area planted to sugarcane, as

well as the hot and dry weather conditions brought about the El Nino weather

phenomenon has affected domestic sugar production this crop year. According to

industry experts, the erratic rainfall during the vegetative growth of cane also hurt

production. In Mindanao, there are also reports of crop shifting in Bukidnon and

Maguindanao, as well as delayed milling in North Cotabato during the fourth quarter of

2009. According to SRA, sugarcane production is estimated at around 19 MMT, a drop

from the previous 22 MMT projected.

The island of Negros still continues to account for majority (57%) of the total

sugar production in the country. Luzon produced 14 percent; Mindanao, 19 percent;

Panay, 6 percent; and Eastern Visayas, 4 percent. Total domestic sugar production

comes primarily from four major sugar planter federations and three major miller

associations. Producers who belong to these organized federations account for 90


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percent of the total domestic sugar production. Planters and millers not affiliated with

the major federations produce the remaining 10 percent.

While there is no formal trade in sugarcane due to the unique quedan system in

the Philippines, according to industry sources, a metric ton of sugarcane can roughly

valued at about P2,100-P2,300 (as of April 23, 2010 and based on the current average

price of a 50-kg bag of raw sugar). In CY 2008/09, the average mill site price per 50-kg

bag of A raw sugar was P884 for the U.S. market; P1,034 for "B" raw sugar for the

domestic market; P880 for C sugar; P742 for D sugar; the average composite price

was P945.

Area harvested varied from year to year. It decreased by 2.5% annually during

1993 to1998. Large areas were shifted to other crops in 1995 and ceded to agro-

forestry in Western Visayas in 1997. Meanwhile, from 1999 to 2004, area planted was

relatively stable. It declined slightly every year from 2000 to 2002with areas converted

to other crops. On the contrary, area harvested expanded in Cagayan Valley,

SOCCSKSARGEN and in the provinces of Cavite, CamarinesSur and Bukidnon in 2003

while bigger hectare of sugarcane were reported in Davao del Sur, Bukidnon and

Batangas in 2004.

Meanwhile, yields for sugarcane were relatively stable from 1993 to 1997. In

1993, Northern Mindanao registered the highest yield at 88 tons per ha, followed by

Cagayan Valley at 86 tons per ha. By 1998, average yield dropped by 5% while

Calabarzon and Western Visayas recorded the top yields at 65 and 61 tons per ha,

respectively. From 1999 to 2004, average yield posted growth of 2% per year. In 2004,


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Western Visayas remained among the highest yields with 73 tons per ha but was

bested by ARMM with 77 tons per ha.

TABLE5. SUGARCANE: Average Yield, 1993-2004

Consumption

The Philippines avoided most of the effects of the world recession in 2009.

Despite two major typhoons in the second half of 2009, Gross Domestic Product (GDP)

expanded 0.9 percent last year, within the Philippine governments (GRP) 0.8-1.8

percent growth target. For 2010, GRP economic planners predict a growth range of

between 2.6 percent and 3.6 percent, consistent with expectations from the World Bank

and Asian Development Bank that Philippine GDP would more than double last years

growth rate. The GRP has announced its intention to continue to inject into the economy

stimulus funds, albeit in lesser amounts, possibly until 2012 to ensure the countrys full

economic recovery. The Philippine Central Bank is also expected to maintain low

interest rates through most of 2010 to stimulate the economy.


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Remittances from Overseas Filipino Workers (OFWs) continued to be the bright

spot of the Philippine economy last year with remittances expected to reach a record

$17.1 billion in 2009, up 4 percent from $16.4 billion in 2008. OFW remittances are

expected to grow even stronger (6 percent) in 2010, according to press reports.

Remittances from abroad enhance higher consumption, help keep inflation in check and

have a stabilizing effect on foreign exchange. Another recent and emerging economic

driver that drives consumption up is the local business process outsourcing (BPO)

industry that reportedly grew over 20 percent in 2009, and is expected to generate

between $11-13 billion in revenue in 2010 as more companies improve efficiency and

cut down costs. The main stimulus for increased consumption this year, however, will

be spending for the May 2010 elections. Some economists expect GDP to rise by an

estimated half point by increasing consumption and providing jobs as a result of

election-spending.

According to a study by the University of Asia and the Pacific, the users of sugar

are local consumers and the export market. Local consumers consist of household

users, which account for 57 percent of domestic consumption; industrial users, 39

percent; and institutions (e.g., restaurants, bakeshops, hospital etc.), 4.6 percent. The

export market is mainly the United States, which pays a premium price (i.e., higher than

the world market price).

Domestic sugar consumption has been traditionally measured by monitoring

sugar withdrawals from the mills. According to SRA data, total domestic sugar

withdrawals which mirrors consumption is estimated at 1.9 MMT for CY 2008/09.

Domestic sugar consumption for CY 2009/10 will likely increase slightly to 2.0 MMT due


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to a predicted increase in consumption brought about by an improvement in the

Philippine economy as well as election spending.

Trade

Sugar exports fluctuated from 1993 to 1998. From 1999 to 2004, it continuously

declined during 1999 to 2001 but managed to bounce in the next three years. Exports

comprised mostly of centrifugal (raw) sugar (85% of total value) with bulk going to the

premium-priced US quota market.

Meanwhile, sugar importation has changed over the years. Imports increased

significantly in 1995 to 1996 in part due to production shortfalls but mainly to massive

importation by sugar traders. However, it decreased since 2000. The country became a

net exporter of sugar since 2002 as a result of increases domestic production. Over the

12 year period, the bulk of imports were in the form of refined and raw sugar, although


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no raw sugar imports were registered from 2003 to 2004. The dominant suppliers for

refined were Thailand and South Korea while for raw were Thailand and Australia.

TABLE7. SUGARCANE: Production and Trade Volume Index by Product Type,

1993-2004

The Philippines is expected to export 142,160 MTRV of raw sugar to the United

States this current crop year under the U.S. sugar tariff-rate-quota program plus an

additional 11,706 MTRV as recently announced by the U.S. Trade Representative.

As a result of the projected shortfall in sugar production and to increase buffer stocks

this year, the SRA announced a duty-free importation of 150,000 MT of refined sugar.

The first tranche of 60,000 MT is expected to arrive in the Philippines no later than May

31, 2010 while the second tranche must arrive no later than July 31, 2010 per

guidelines set forth by the National Food Authority.


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In the WTO, the Philippines committed to a final 10th-year Minimum Access Volume

(MAV) of 64,050 MT of raw sugar, with a tariff rate of up to 50 percent. All importation in

excess of the MAV is subject to a tariff rate of 65 percent.

Executive Order No. 850 was signed in December 2009, lowering the Common

Effective Preferential Tariff Rates for ASEAN (Association of Southeast Asian Nation)

member countries to between 0-5 percent. Executive Order No. 851 was also signed

implementing the tariff reductions under the ASEAN-Australia-New Zealand Free Trade

Agreement (AANZFTA) tariff reduction program. AANZFTA tariffs for sugar were

reduced to between 0-5 percent in January 2010.


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Benchmarking with Relevant Asian Countries

The Philippines is doing better in terms of yield compared with other Asian

countries. It has overtaken Indonesia, the highest in 1993. Philippine yield performance

improved from 1999-2004 with 7.6% growth. The growth can be attributed to the

increasing use of high yielding varieties.

TABLE8. SUGARCANE: Comparative Yields of Selected Asian Countries, 1993,

1998 and 2004

In terms of producer prices, the Philippines came out to be the most expensive

sugarcane producer among selected Asian countries in 1998 which was almost four

times more expensive than Thailand. There was a significant decrease in Philippine

prices in 2002 compared with 1998 prices. During this period, the Philippines had lower

prices than China.

Sugar continues to earn dollar for the country due to the US quota. However,

locally produced sugar is generally not competitive in the export markets like Thailand in

terms of both price and cost.

The derived export parity prices are relatively lower than domestic wholesale

prices especially for sugar coming from Thailand.


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TABLE9. SUGARCANE: Comparative Producer Prices of Selected Asian

Countries, 1993, 1998 and 2002


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ISSUES AND CONCERNS

SWOT Analysis

The Philippine sugar industry has a highly organized private sector who is actively

participating for the development of the industry. They serve the interest of the farming

sector in terms of technical services. Given available workforce provided with technical

skills and modern technology are strengths of the sugar sector. The industrys

weaknesses, if not addressed well, could cause a long-term decline in competitiveness.

Among the major factor to look into is low farm productivity. This is attributed to the

limited use of high yielding varieties in some production areas, limited irrigation, limited

mechanization and poor agronomic practices (i.e. early harvesting). The future of the

industry offers promise provided the strengths are capitalized on and the weaknesses

frontally addressed. There are still high potentials for yield and quality improvements.

Moreover, potentials for area expansion are still present to increase production. The

strong domestic demand due to increasing population and expanding usage of food

processors provide more opportunities to the industry. The development and expansion

of the industry are constrained by number of factors. The threats and the weaknesses

must be addressed with concerted actions by the stakeholders. Extension of CARP

implementation, for example, can lead to inefficiencies in farm production. The declining

US Quota is considered a threat because it is the reliable market for Philippine sugar

which pays premium price. The presence of artificial sweeteners as substitute also cuts

down sugar consumption.


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TABLE10. SUGARCANE SWOT ANALYSIS


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RECOMMENDATION

After the study of the sugarcane industry, we concluded that for dealing issues

related to sugarcane it requires strategic action plans. For the sugarcane industry to

prosper, we recommend to identify its core competencies, critical success factors and

challenges for the crop/industry. Also, to conduct internal appraisal and identify blinkers.

Utilize these strengths in making strategic action plans, converting weaknesses into

their strengths or how the impact of these weaknesses can be minimized. Take benefits

from opportunities and minimize the consequences of possible threats in making best

use of SWOT technique.


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BIBLIOGRAPHY

Ang, P. A. (2009-10, January). GLOBAL AGRICULTURAL INFORMATION NETWORK

REPORT.

Henderson, C. (2000, June). Pearl of the Orient Seas. Retrieved September 16, 2010,

from Asia Pacific Management Forum: http://www.apmforum.com/columns/orientseas

O Almazan, L. G. (2010). THE SUGAR CANE, ITS BY-PRODUCTS AND CO-

PRODUCTS.

Studies, T. L., & Factbook, C. W. (n.d.). Philippine Sugar. Retrieved October 1, 2010,

http://www.photius.com/countries/philippines/geography/philippines_geography_sugar


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DOCUMENTATION


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Sugar Cane Industry

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